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EPSAS Cell on principles related

to EPSAS standards:

Interim Report

5th meeting of the Working Group EPSAS

21-22 November 2017 – Luxembourg

Directorate C: National Accounts, Prices and Key Indicators

Task Force EPSAS – European Public Sector Accounting Standards

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EPSAS Cell on Accounting Principles – state of play

Volunteers from BE, FI, FR, IT, DE (federal level and Hessian Court

of Auditors), IPSASB and the ACE participate in this Cell.

4 physical meetings in Luxembourg;

Outcome of the Cell are following reports:

• Progress report – WG in Paris Jul 2016

• Interim report – WG in Rome Nov 2016

• Progress report (oral) – WG in Lisbon April 2017

• Interim report – WG in Luxembourg Nov 2017

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Interim report of November 2017

Background of the Cell's work

The EPSAS outline

Following the opinion of the EFC sub-committee on statistics

work on IA considerations intensified. First exchange on:

• definition of elements,

• recognition/ derecogniton

• measurement basis

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Work of the Cell ─ Background

At the first Cell meeting it was agreed to compile an overview table

comparing the approaches and definitions of principles/ qualitative

characteristics in use:

• in the countries of the cell participants,

• IPSAS, and

• the Commission's own accounting rules.

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Comparison table of principles ANNEX 2

IPSAS / IPSAS1 European Commission Belgium France Finland German Federal MoF 3rd Senate of the Hessian Court of Auditors

Objectives of standard setter Objectives of standard setter Objectives of the standard setter Objectives of the standard setter Objectives of the standard setter Objectives of standard setter Objectives of standard setter

Objectives of financial reporting/GPFRs Objectives of financial reporting/GPFRs Objectives of financial reporting/GPFRs Objectives of financial reporting/GPFRs Objectives for EPSAS CF Objectives of financial reporting/GPFRs Objectives of financial reporting/GPFRs

Users of financial reports Users of financial reports Users of financial reports/GPFRs Users of financial reports/GPFRs Objectives of financial reporting/GPFRs Users of financial reports Users of financial reports

Reporting entity Going concern Users of financial reports/GPFRsFUNDAMENTAL PURPOSES (Basic

objectives)Objectives of financial reporting

GENERAL PRINCIPLE Transparency and information Intergenerational fairness

Faithful representation Stability and intergenerational fairness Financial stability and sustainability

Compliance Comparability Accountability

True and fair view Comparability

QUALITATIVE CHARACTERISTICS QUALITATIVE CHARACTERISTICS QUALITATIVE CHARACTERISTICS QUALITATIVE CHARACTERISTICS QUALITATIVE CHARACTERISTICS QUALITATIVE CHARACTERISTICS QUALITATIVE CHARACTERISTICS

Relevance Relevance Relevance Neutrality Relevance Relevance Reliability

Faithful Representation -materiality Reliability Relevance Reliability Faithful representation -verifiability

-reliability Reliability -faithful representation Reliability Prudence Understandability -substance over form

-substance over form -faithful representation -substance over form Completeness Faithful representation Timeliness -prudence (conservatism)

-neutrality -substance over form -neutrality Understandability Understandability Comparability -faithful representation

-prudence -neutrality -prudence Prudence Timeliness Verifiability Objectivity

-completeness -prudence -completeness (Timeliness)* Comparability Constrains Relevance

Understandability -completeness Understandability Comparability Verifiability -materiality Understandability

Timeliness Understandability Timeliness Substance over form -(cost-benefit)* Timeliness

Comparability Comparability Comparability Offsetting -(balance between the QCs)* Comparability

Verifiability Verifiability = Justification Verifiability Verifiability (subprinciple of reliability)

Constraints Constraints Constraints Constraints Constraints PRIMARY PRINCIPLES MATERIAL ACCOUNTING PRINCIPLES

-materiality -timeliness -materiality -materiality -materiality Prudence (Conservative Accounting) Prudence

-cost-benefit -cost-benefit -cost-benefit -cost-benefit -cost-benefit Reliability -realisation principle

-balance between the qualitative

characteristics

-balance between the qualitative

characteristics

-(balance between the qualitative

characteristics)*

-(balance between the qualitative

characteristics)*

-balance between the qualitative

characteristicsObjectivity -imparity principle

-confidentiality -confidentiality -valuation at cost principle

PRINCIPLES OVERAL CONSIDERATIONS ACCOUNTING PRINCIPLES OTHER PRINCIPLES Single asset / liability reporting

Fair presentation Fair presentation True and fair view Accrual concept CONSTRAINTS

Compliance Compliance (required by Fin.Reg.) Entity concept Individual valuation Accruals concept

Going concern Accrual basis Going concernCorrespondence of opening and closing

balance sheetGoing concern

Consistency Going concern Money measurement principle Consistency Correspondence

Aggregation ConsistencyIndividual recognition and

measurementNeutrality Consistency

Offsetting Aggregation Off-setting Completeness Cost-Benefit

Reporting period Offsetting Periodicity Freedom from material errorBalance between the Qualitative

Characteristics

Reporting period (required by Fin.Reg.) Matching principle Clarity

* items not covered

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Work of the Cell ─ Background

Based on the comparison a possible approach for EPSAS was

outlined with three levels of components:

• High-level objectives of EPSAS, purpose and main users of

GPFRs, including high-level principles such as 'true and fair

view' and the 'accrual concept'

• Qualitative Characteristics and Constraints

• Application principles

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Work of the Cell ─ Background

Taking into account comments and diverging views Eurostat

concluded:

• the approach outlined for EPSAS seemed complete

• no hierarchy among QCs/ principles was necessary

• the on-going international developments at IASB and IPSASB

level (e.g. on the principle of 'prudence') should be taken into

consideration.

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EPSAS outline

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EPSAS outline

Most changes aimed at simplifying or removing unnecessary

text passages and improving the consistency of the definitions

e.g. references to GPFRS and EPSAS

Additional text proposed for:

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• Faithful representation • Verifiability

• Completeness • Presentational sensitivity

• Neutrality • Consistency

• Understandability • Going concern

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EPSAS outline - Verifiability

"Verifiability is the quality of information that helps assure users

that information GPFRs is based on supporting evidence in

GPFRs a way that it faithfully represents the substance of

economic and other phenomena that it purports to represent."

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"Financial statements shall be prepared on a going concern basis

unless there is an intention to liquidate the entity or to cease

operating, or if there is no realistic alternative but to do so.

The rights and obligations specific to public action entrusted in

public entities may only cease to exist, in full or in part, by law or

decision of the government, even where public sector entities are

merged, split or dissolved."

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EPSAS outline – Going concern

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Definition of elements

The list of elements under consideration included:

Net worth (net assets/ liabilities) and Net expenses/ revenue

(surplus/ deficit) to be mentioned as the balancing items.

Deferred inflows and outflows were not defined in the IPSAS CF

but should be incorporated.

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• Assets • Ownership contributions

• Liabilities • Ownership distributions

• Expenses

• Revenue

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Recognition/ derecognition

General recognition/ derecognition criteria applied in IPSAS was

discussed.

Special case proposed to be added:

In exceptional circumstances, a standard may also specify that, in

order to deliver true and fair view under EPSAS, a resource or

obligation that did not meet the definition of an element or satisfy

the recognition criteria, might nevertheless need to be recognized

in the financial statements.

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Measurement

Measurement basis listed in IPSAS CF and IPSASB`s on-going

project on public sector measurement was discussed.

It was suggested by a participant to narrow down the possible

choices to historic cost and observable market values but other

participants disagreed.

The framework should provide a toolbox for the standard-setter

with widest possible range of measurement bases.

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Next steps

Taking into account comments from the WG, Eurostat with the

assistance of the Cell will finalise:

• the EPSAS outline (QCs, Constraints and Applications

principles);

• the definition of elements;

• the recognition and derecognition criteria;

• the set of measurement bases after discussing in some detail

their formulations;

The notion of other comprehensive income (OCI) and the

discussion on the transferability of pension rights would be

followed up at the next meeting of the Cell.

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European Commission (Eurostat) Task Force EPSAS:

http://ec.europa.eu/eurostat/web/government-finance-

statistics/government-accounting

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